GBP/USD holds gain amid soft US Dollar on tariff fallout

• US tariffs on Mexico, Canada, and China weigh on risk sentiment, dragging USD lower.
• US Dollar Index (DXY) hits three-month low at 105.87 before recovering slightly.
• UK inflation risks rise as minimum wage hike adds pressure ahead of BoE rate cuts.

The Pound Sterling clings to early gains, extending its advance to two days versus the US Dollar as tariffs enacted by US President Donald Trump against Mexico, Canada, and China come into effect. Although the market is risk averse, traders punish the Greenback as the economic outlook darkens. The GBP/USD trades at 1.2708, up 0.08%

Sterling rises to 1.2708 as Greenback struggles on economic concerns

The economic calendar is light in the US, except for speeches by Federal Reserve officials. Tariffs of 25% on imports from Mexico and Canada and an additional 10% on Chinese products shifted investors' moods. Despite these measures being seen as inflation-prone, US Treasury bond yields are edging lower, with the 10-year T-note down seven basis points in the week at 4.132%.

Consequently, the US Dollar Index (DXY), which tracks the buck's behavior against a basket of six currencies, has fallen to a three-month low of 105.87. However, it has pared some of its losses, yet the DXY is down 0.33% at 106.20.

Across the pond, the British Retail Consortium (BRC) shop price index in February dropped -0.7 % YoY overnight. Nevertheless, prices rose 0.4% MoM due to a rise in food prices. BRC Chief Executive Helen Dickinson said that shop prices will likely increase further as retailers face a surge in annual costs this year due to a nearly 7% rise in the minimum wage on April 1.

This measure could put upward pressure on inflation at a time when the Bank of England (BoE) is embarking on an easing cycle. In January, the Consumer Price Index (CPI) rose by 3%, hitting a 10-month high. Ahead in the docket, BoE Governor Andrew Bailey would cross the wires on Wednesday.

In the US, market participants will be watching President Donald Trump address the US Congress at 01:00 GMT.

GBP/USD Price Forecast: Technical outlook

Despite reaching a new year-to-date (YTD) high of 1.2753, the GBP/USD retreated somewhat as market players digested US tariffs. Buyers lacked the strength to test the 200-day Simple Moving Average (SMA) at 1.2785, which could've sent the pair towards 1.2800 if cleared. On the other hand, if GBP/USD slumps beneath 1.2700, sellers would be poised to push prices toward the 100-day SMA at 1.2627, ahead of 1.2600.